The financial crisis is a case in which nobody wanted to make an omelette, so nobody dreamed of cracking the egg.
By PINCHAS LANDAUhumpty dumpty(photo credit: )
This column has already noted the value of Through the Looking-Glass, and What Alice Found There as a guide to the new, post-crash world. Arguably the most important character in the book, in terms of relevance to our current situation, is Humpty Dumpty.
The arrogant stupidity of this fat, smug, self-aggrandizing - but undeniably clever - prig, marks him unmistakably as an investment banker. Perched precariously on his wall, his eventual disastrous fall is immediately obvious to any discerning outsider, such as Alice - because all known laws of physics and human behavior highlight the sheer impossibility of his maintaining his balance indefinitely.
Yet he firmly dismisses any talk of so negative an outcome. "Of course I don't think [that I'd be safer down on the ground]. Why if ever I did fall off - which there's no chance of - but if I did, the King has promised me - ah, you may turn pale, if you like! You didn't think I was going to say that, did you? The King has promised me - with his very own mouth - to - to..."
"To send all his horses and all his men," Alice interrupted.
This part of the discussion, indeed the whole Humpty Dumpty chapter, is about the concept we now term "moral hazard." The financial sector exposed itself to larger and larger risks. Its first and main line of defense was to deny any such exposure. The argument, in Humpty Dumpty terms, was: "I've been sitting up here on this wall for one hour/day/week/month and nothing has happened. Therefore there is no risk."
If pressed hard - such as by reference to the mantra that appears on every piece of marketing material prepared by any financial institution, which says "past performance is no indication of the future" - there was the second line of defense to fall back on: If anything happens - which, of course, it won't, but IF it did - then the King has promised to send all his horses and all his men. Because, you understand, we are TBTF - Too Big To Fail.
Immediately after being dismissed by Humpty Dumpty, Alice heard "a heavy crash that shook the forest from end to end," and "the next moment soldiers came running... then came the horses."
That is the opening of the next chapter, and that is pretty much exactly where we are today. Humpty Dumpty's confidence in the King's promise was not misplaced; he was as good as his word, then and now. All the king's horses and all the King's men - the entire American economy - have been mobilized "to put Humpty Dumpty in his place again." The amounts of money poured into this effort are beyond the heavily overworked term "unbelievable." Until as recently as last September, nobody knew they existed, or that they could exist.
The Federal Reserve has already, and is continuing, to conjure trillions of dollars out of thin air, in an attempt to at least partially restore Wall Street to some semblance of its pre-crash state. The official rationale for this spending, on a scale unprecedented in peacetime, is that rescuing the financial sector is essential for the wider economy.
The antiestablishment view, available on myriad Web sites and heard in countless bars and pubs around the world, is that Wall Street owns Washington - the King is in Humpty Dumpty's pocket, as it were. How this explains the fact that policy has barely changed one iota from the Bush to the Obama administrations is an open question. But for serious conspiracy theorists, the idea that Obama, too, is but a pawn in their game is simply grist to their mill (unless, of course, he's a pawn in the game of the Communists, or the Islamists - every group of nuts has their own "theory").
Far more serious is the bottom line of the poem: All the King's horses and all the King's men, COULDN'T put Humpty Dumpty in his place again. The sheer scale of the frenetic activity must have been impressive, but the sad outcome was that the mission failed - not for lack of trying and not for insufficient resources, but because it was mission impossible from the outset. Once Humpty Dumpty fell off the wall, he was unsalvageable. The shiny exterior, once cracked, revealed a gooey mess inside.
The financial crisis is a case in which nobody wanted to make an omelette, so nobody dreamed of cracking the egg. But, by reverse, looking-glass logic, if you've got a cracked egg, the only thing you can do with it is scramble it up, make it lose its old identity entirely, and maybe it will then make a positive contribution to something tasty, or at least edible.
landaup@netvision.net.il
